Comparative Banking – Will Non-Interest Banking Realize success?


Islamic Banking or non-interest banking as it may well be termed could be just recognized to be a banking method where by interests are not billed. Earnings on revenue lent can only be understood from a definite price making process. Hence, non-desire banking legalises only profits. All other varieties of pursuits charging are prohibited.

2. Dialogue/ COMPARISM

To discus this subject reasonably in this temporary paper, it could be sensible to make an evaluation by way of comparison and so compare non-desire banking as versus the traditional kind of banking that is predominant now. Hence, evaluating earnings and loss sharing in opposition to curiosity charging.

1 – Discounts and Investments

These are the 2 most important determinants of economic development and improvement in any economic system. Contrary to the common apprehension, which purports that prohibition of passions may possibly decrease the stage of financial savings and might thus retard economic advancement and development. A increase in interest fees, decreases the money of the borrower. It consequently minimizes his propensity to conserve/invest. This occurs due to the fact of the price (interest) of funds he borrows.

2 – Unemployment and Inflation

When passions premiums are significant, price tag of capital are substantial and at some point value of generation are also significant. This will cause a slide in the volume of organization thereby foremost to the closure of production units, retrenchment of workers to minimize down prices or mainly because their services are no for a longer period expected, and producers may perhaps decide to boost selling prices of their merchandise and providers to stability their ‘cost/income’ trend. Consequently, inflation is activated.

3 – Profitability and Productiveness

Revenue sharing promises leverage added benefits to corporations free of charge of threat and a return larger than the charge of fascination to the financier. Fluctuations in the charge of profit on fairness underneath income and loss sharing finance are probably to be smaller than the level of gain on fairness below curiosity finance, and revenue and loss functions may well have a compact destabilising probable for the economic system as a total as opposed to funding on curiosity. For the financiers and the corporations that borrow resources from them, the income and reduction sharing technique is the greatest and most suitable.

3. Danger Spread

With the prohibition of pursuits choice shares, debentures, professional papers, treasury charges, bankers’ acceptance will no lengthier exist (at the very least in their desire earning forms). This does not in any way narrow the expense options/portfolios accessible to banks. This is mainly because other belongings symbolizing gain sharing arrangements will also exist mechanically. Consequently, the names of preference shares, commercial papers etcetera might not alter, but their interest traits will be abolished.

In an Islamic money process, the availability of assets with a selection of risk attributes is a unique likelihood and there is no cause to suppose that there is a restrict to the diversity of property in this sort of a program.

4. Summary

In light-weight of the over justifications, it is really clear that non-desire banking is right here to remain. I am of the the very least question that from the inferences, which can be drawn from the comparisons earlier mentioned, non-curiosity banking, will succeed. This is for the reason that ‘profit sharing’ is outstanding as compared to other applications of macro-economic coverage (that is, ‘interest charging’). Revenue sharing has a good quality, which most other macro-financial tools commonly deficiency. This excellent is security.